Competitive Advantage: Returning to Basics

By Todd Ballowe

No matter what you believe about the current economic crisis, there’s one thing we can all agree on: it has created an environment of great uncertainty. What worked last year is no guarantee this time around. Credit is harder to come by, people aren’t paying bills on time, and jobs aren’t nearly as secure as they once were. In these volatile times, it makes great sense to focus on the basic business principles that keep your organization running strong; what better place to begin then your core competitive advantage?

When money is tight, we’re all tempted to scramble to fight for quick cash by promoting massive sales or developing gimmicks for getting people through the door. Rather than going out and spending money developing new bells and whistles, first we all need to make sure that we’ve secured our place within our given region and industry.

How strong is your competitive advantage? To find out, ask your employees, customers and vendors to respond to a questionnaire that will give you insight on your competitive advantage. You could use the following questions, or develop questions on your own.

What is the purpose of your business?

If you were to describe your organization in one sentence or one word, what would it be or how would you describe us?

What are we doing that you like? How do we help meet your needs?

What are we doing that you don’t like? Or in what areas could we improve?

Is there anything that we are not currently providing that you need?

When your friends are looking for your type of product or service do you refer our company? Why or why not?

Stating your competitive advantage succinctly

You’ve probably heard of the concept of the ‘Elevator Pitch.’ The idea of the elevator pitch is that in 30 seconds you should be able to effectively explain what your company does. But, is it enough to just say what you do? You should be able to say what you’re best at in one or two sentences. If you couldn’t respond immediately to the question “why should I chose you over your competitors,” you need to draft a succinct competitive advantage.

Putting your advantage to the test

It isn’t enough just to have an advantage over your competitors. For your business to be great, it needs to be sustainable and able to endure the test of time. You have to be able to combat today’s fierce market forces and uncertainty. Do you want to know why? I’ll tell you.

Think about the graveyard of businesses from the dot-com era. Many of these companies didn’t pass the sustainability test. You don’t want your company to be a distant memory. In fact, you probably want it to live on past your time. And if you’re a department manager, you probably want to see your department continue on instead of being restructured.

Here are the cold hard facts:

Roughly 70 percent of all new products/services can be duplicated within one year

60 to 90 percent of process improvements (learning) eventually diffuse to competitors.

You need to make sure that your competitive advantage is something that’s long-lasting and not easy to duplicate. So how do you know when you’ve developed a sustainable competitive advantage? You need criteria to help you gauge your success. Take a look at the measures below to see if you’re on the right track:

Consistent difference: Customers must see a consistent difference between your product/service and those of your competitors. This difference needs to be obvious to your customers and it must influence their purchasing decision.

Difficult to imitate: Your competitive advantage must be difficult to imitate. You want to have an advantage that your competition can’t easily duplicate or don’t understand how to copy. Often this comes in the form of people, proprietary knowledge within your organization, or business processes that are behind the scenes.

Constantly improved: The first two bulleted items in this list must create activities that can be constantly improved, nurtured, and worked at to maintain an edge over your competition. The comparison of Wal-Mart over Kmart is a great example of how one continued to improve its supply chain management and purchasing whereas the other didn’t. Unfortunately for Kmart, it lost its edge because it didn’t constantly improve. Wal-Mart invests in ever-refining its product selection and processes.

Breaking away from the pack

Will your customers see a consistent, superior difference between your product/service and those of your competitors?

How difficult will it be for competitors to imitate your advantages?

Can your company constantly improve?

Developing competitive advantages isn’t always easy or straightforward. For many, a competitive advantage is developed by nurturing a strength over time. This process turns the activity or intangible asset into something that’s difficult to copy. If you have a strength where you can break away from your competition, it’s worth spending your energy and resources to develop it further.

Here are some great ways to break away from the pack:

Consistency: One of the hardest and one of the best advantages is the ability to deliver the same product or service time after time after time. To do so, a company must have rock solid processes that deliver consistency no matter what.

Brand development: Growing and developing your brand over time can be a core competency worth more than all the past years’ marketing budgets combined. Developing your brand happens by reinforcing your image in the marketplace through everything you do. Think Kleenex. You don’t say “Hand me a soft facial tissue”; you say, “Hand me a Kleenex” even if the brand is something else. Coke is similar. Many people refer to all soda products as Coke. Those brands have become the product type they represent.

Depth of knowledge: Consider how much knowledge you gain in your business year after year. I like to call it tribal knowledge. The longer you’re in business, the more that tribal knowledge grows. But it only feeds on itself if you capture your experiences in a systematic way. Just as employees can be a key strength, they can also be a key weakness if they move on without leaving the knowledge with the tribe.

Continued innovation and improvement: Some organizations excel at innovation whereas others struggle. Innovation is the ability to develop products and services that your market wants better and faster than your competitors. Intuit, with its Quicken and QuickBooks products, is a company that fosters continuous improvement based on customer feedback. Improvement for improvement’s sake is a black hole. Quicken product sales show how this core competency can be worth the time it takes to develop it.

Longevity: The pure staying power of a company over time can be a testament to its strength. It’s hard to nurture longevity, but it’s something that can be leveraged if you have it. Family businesses are great examples of firms that can use their market history as a core competency.

Once you have a solid understanding of your competitive advantage, you know what to focus on to make it through uncertainty. Times will change. Prosperity and booming economies will come and go. But your sustainable competitive advantage will always be the most important thing for your company to nurture.